Mortgages For Sole Traders

Can I get a mortgage as a sole trader?

Yes, it’s possible. Being self-employed can make getting a mortgage more difficult than if you were full-time employed. That’s because a sole trader’s income is, by the very nature of working for yourself, much more unpredictable than an employee who receives the same payslip every month showing the same salary amount.

A mortgage lender wants to see consistency when they conduct affordability checks. If you’ve been a sole trader for a number of years (more than three) and can provide certified accounts showing a healthy net profit, then your chances of getting a mortgage will be quite high if the rest of your application is strong.

Not all mortgage lenders will consider applications from sole traders. That’s why working with a mortgage broker can prove to be a wise move. They can identify the right lenders who will look more favourably on these types of applications.

If you get in touch, a member of our mortgage team can contact you to discuss your circumstances and look at what options are available.

How long should you be a sole trader before you can get a mortgage?

Lenders like to see a history of income when you’re a sole trader. They need this so they can determine your affordability for the mortgage you’re applying for. As with most self-employed people, most lenders will want to see at least three years' worth of accounts to show how much you earn as a sole trader.

But there are specialist lenders who’ll consider your application with less. Some will consider you with 12 months of trading history, and others will possibly consider you if you have literally just started out.

The important thing is to have plenty of evidence and proof of your income, and that it shows you can comfortably afford the mortgage repayments for the amount you want to borrow.

Our team of Mortgage Experts will be able to offer you as much guidance as you need for this purpose.

What proof of income do I need as a sole trader?

As a sole trader, lenders need to see evidence of your income. Specifically, they’ll want to know what your net profit looks like. They get this usually by seeing your SA302 tax calculation available online from HMRC after you complete your self-assessment tax return. They’ll also accept certified business accounts from your accountant too. 

Proof of income for sole traders can be: 

• An SA302 tax calculation and tax year overview

• Certified accounts from a qualified accountant 

• Bank statements

Once lenders have your proof of income, they’ll match this with their lending criteria to ensure that they’re both lending responsibly and that you will be able to afford to make monthly repayments.

A lot of lenders will want to see three year’s worth of accounts, but specialist lenders will accept you with less as long as you have evidence you can show for your earnings and any future income projections.

How does bad credit affect my chances of getting a mortgage if I’m a sole trader?

If you’ve got bad credit, it can be more difficult to get approved for a mortgage, but it’s not impossible. It really depends on the type of bad credit issue you’ve had, when it happened and the amounts involved.

Working with a specialist broker who understands how bad credit can affect applications will help boost your chances of success.

Our Mortgage Experts can work out what the impact could be and which mortgage lenders might be able to consider your application. Make an enquiry and a member of our mortgage team will be in touch to discuss further.

What’s the difference between a company director mortgage and a sole trader mortgage?

A company director, unlike a sole trader or a person who is self-employed in a partnership, will likely pay themselves a base salary and top this up with dividends, for the purpose of tax planning. 

A sole trader or partnership won’t be able to draw down dividends. That means that lenders will often view these two types of self-employed people differently, based upon the complexities of their income and earnings. 

There are mortgages available for both company directors and sole traders, and working with the right broker will help you to find the right lender and deal based on your specific financial situation.

Read more in our Guide: Mortgages For Company Directors.

How will a lender determine my affordability as a sole trader?

Mortgage lenders each have different lending criteria which will affect how much they’re willing to let you borrow for a mortgage as a sole trader. The calculations will vary, but on average lenders will be willing to give you up to 4.5x your income amount. Some lenders will give you more than that, some will offer less depending on your situation and what their criteria is. 

So, for example, if your average annual net profits over the last three years as a sole trader was £40,000 per year, you could be able to borrow up to £180,000 for a mortgage (£40,000 × 4.5 = £180,000).

This would also rely on the rest of your application being strong and having a healthy deposit, which would typically need to be around 10% of the value of the house you wanted to buy.